Shares of Eicher Motors fall 4% as CLSA downgrades valuations; company launches new bike

MUMBAI: The shares of Eicher Motors took a knock of over 4% on Wednesday after CLSA downgraded it as its valuations have turned expensive.

The stock, which has been a consistent outperformer over the past few years, had gained over 27% in the last three months as sustained demand drove the company’s volumes to over 54% to about 4.48 lakh units, and the company is likely to end FY16 with an approx half million sales units. ET has learnt the firm is working on a plan to sell over 6.4 lakh units in FY17, which may mean a growth of 30-32%.

“Honestly, we don’t think too much about numbers, instead we focus on our levers of growth. Our aim is to sustain the growth momentum, but 50-60% growth will come down with the base growing. We had planned for 6.2 lakh units for the calendar year 2016, but since we are moving to a financial year, that number will change, probably on a little higher side,” Siddhartha Lal, MD of Eicher Motors, told ET. CLSA downgraded Eicher Motors’ stock to ‘underperformer’ from ‘buy’ owing to expensive valuation.

The brokerage house noted that there’s a limited upside to FY17 and FY18 due to Royal Enfield’s capacity constraint, and one needs to give 35 times price-earnings multiple for the projected earnings of FY18 to justify a 20% upside from the current level.

In the long term, the brokerage has assigned 25x of expected earnings of Royal Enfield for FY20 and sees a modest 8% stock return on an annualised basis in the next three years. Royal Enfield, the two-wheeler arm of Eicher Motors, on Wednesday launched its adventure bike Himalayan at an aggressive price tag of Rs 1.56 lakh, ex-showroom Maharashtra.

This was Eicher’s first grounds-up motorcycle since taking over the brand few decades back.